SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC. 20549
FORM 10-QSB
[x] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended October 31, 2002.
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1943 for the transition period from ____________ to _______________.
1-9087
(Commission file no.)
SUMMA RX LABORATORIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-1535372
(State or other jurisdiction of (IRS employer
incorporation or organization) identification no.)
2940 FM 3028, Mineral Wells, Texas 76067
(Address of principal executive office) (Zip Code)
(940) 325-0771
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the
preceding 12 months (or for a shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes [X] No [ ]
As of October 31, 2002 there were 3,145,838 shares of common stock outstanding.
SUMMA RX LABORATORIES, INC.
TABLE OF CONTENTS
FORM 10-QSB
<Table>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheet 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 7
Item 3 - Controls and Procedures 8
PART II - OTHER INFORMATION 8
Item 1 - Legal Proceedings 8
Item 2 - Changes in Securities 8
Item 3 - Defaults Upon Senior Securities 8
Item 4 - Submission of Matters to a Vote of Security Holders 8
Item 5 - Other information 8
Item 6 - Exhibits and Reports on Form 8-K 8
SIGNATURES 9
CERTIFICATIONS
Certification of President 10
Certification of Chief Accounting Officer 11
EXHIBIT INDEX 12
Exhibit 99-1
Exhibit 99-2
</Table>
2
SUMMA RX LABORATORIES, INC.
CONSOLIDATED BALANCE SHEET
October 31, 2002
(Unaudited)
<Table>
ASSETS
Cash $ 337,018
Trade accounts receivable 97,121
Inventory 117,177
Deferred tax asset 1,019
Other current assets 20,273
-----------
Total current assets 572,608
Property, plant and equipment 2,254,308
Less accumulated depreciation 1,029,931
-----------
Net property, plant and equipment 1,224,377
Land 5,798
-----------
Total assets $ 1,802,783
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 75,296
Accrued liabilities 65,242
Customer deposits 10,277
Deferred tax liability 41,909
-----------
Total current liabilities 192,724
Common stock - authorized, 10,000,000 shares of $.01
par value; issued and outstanding, 3,145,838 shares 31,458
Additional paid-in capital 3,219,379
Accumulated deficit (1,640,778)
-----------
Stockholders' equity 1,610,059
-----------
Total liabilities and stockholders' equity $ 1,802,783
===========
</Table>
See accompanying notes to the financial statements.
3
SUMMA RX LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<Table>
<Caption>
Three months ended Six months ended
October 31 October 31
2002 2001 2002 2001
----------- ----------- ----------- -----------
Net Sales $ 398,415 $ 456,076 $ 762,617 $ 836,733
Cost of Goods sold 302,351 358,254 608,227 720,279
----------- ----------- ----------- -----------
Gross Profit 96,064 97,822 154,390 116,454
Selling, general and administrative 149,766 103,965 286,359 230,240
----------- ----------- ----------- -----------
Operating loss (53,702) (6,143) (131,969) (113,786)
Other income (expense)
Interest income 1,219 4,577 2,907 10,543
Interest expense -- -- -- (42)
----------- ----------- ----------- -----------
1,219 4,577 2,907 10,501
----------- ----------- ----------- -----------
Net loss before taxes (52,483) (1,566) (129,062) (103,286)
----------- ----------- ----------- -----------
Income taxes -- 759 -- 35,099
----------- ----------- ----------- -----------
Net loss $ (52,483) $ (808) $ (129,062) $ (68,187)
=========== =========== =========== ===========
Basic and fully diluted (loss) per share $ (.02) $ -- $ (.04) $ (.02)
=========== =========== =========== ===========
Weighted averages shares outstanding 3,145,838 3,145,838 3,145,838 3,145,838
=========== =========== =========== ===========
</Table>
See accompanying notes to the financial statements.
4
SUMMA RX LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<Table>
<Caption>
Six months ended
October 31
2002 2001
------------ ------------
Cash flows from operating activities
Net loss $ (129,062) $ (68,187)
Adjustments to reconcile net loss to
net cash provided (used) by operating activities:
Depreciation and amortization 55,110 58,650
Changes in operating assets and liabilities:
Trade accounts receivable (69,446) 150,532
Income tax receivable 208,778 --
Inventory (22,879) (4,725)
Other current assets 5,544 23,547
Accounts payable and accrued expenses (49,329) (107,521)
------------ ------------
Net cash provided (used) by operating activities (1,284) 52,296
Cash flows from investing activities
Capital expenditures (117,053) --
------------ ------------
Net increase (decrease) in cash (118,337) 52,296
Cash at beginning of year 455,355 643,817
------------ ------------
Cash at end of year $ 337,018 $ 696,113
============ ============
</Table>
See accompanying notes to the financial statements.
5
SUMMA RX LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - ORGANIZATION AND GENERAL
Summa Rx Laboratories, Inc. ("Summa") was formed as a Texas sole proprietorship
in 1972 and was incorporated in the State of Texas in October 1976, as Dews
Laboratories, Inc. In November 1987, Dews was merged into a Delaware corporation
and was renamed Summa Rx Laboratories, Inc.
Summa is engaged in the business of manufacturing and marketing of
pharmaceuticals, dietary supplements and nutritional products for sale under its
own label and under contract for others. Its executive offices and manufacturing
facilities are located in Mineral Wells, Texas, approximately 45 miles west of
the Dallas/Fort Worth metropolitan area.
A wholly owned subsidiary corporation, Personal Nutrition, Inc. was incorporated
in the State of Texas in May 2002. Personal Nutrition, Inc. was established to
distribute direct-to-consumer products manufactured by Summa through e-commerce.
Summa is developing a company brand line of dietary supplements to be
distributed under Personal Nutrition, Inc. This practice is consistent with
industry norms whereby contract manufacturers establish their own brands to test
new products, increase control of general sales, and gain potentially higher
margins.
Note 2 - Basis of Presentation
The unaudited consolidated interim financial statements and related consolidated
notes have been prepared pursuant to the rules and regulations of the Securities
and Exchange Commission. Accordingly, certain information and footnote
disclosures normally included in consolidated financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to such rules and regulations. The accompanying unaudited consolidated
interim financial statements and related notes should be read in conjunction
with the financial statements and notes thereto included in the Summa's most
recent Form 10-KSB covering fiscal year ended April 30, 2002.
The information furnished reflects, in the opinion of the management of Summa,
all adjustments (consisting of normal recurring accruals) necessary for a fair
presentation of the financial results for the consolidated interim period
presented.
Note 3 - Earnings Per Share
Summa computes basic earnings (loss) per common share based on the weighted
average number of common shares outstanding. Diluted earnings per share is
computed based on the weighted average number of common shares outstanding plus
the number of additional common shares that would have been outstanding if
dilutive potential common shares had been issued. All potential common shares
were antidilutive in 2002 and 2001. Accordingly, singular earnings (loss) per
share amounts have been presented in the accompanying financial statements.
Note 4 - Segment Reporting
Management identifies segments by distribution markets. The Contract
Manufacturing segment manufactures dietary supplements and nutritional products
for sale under its own label or under contract for others. The Consumer Division
segment was established to distribute direct to consumer products through
e-commerce. Summary information by segment as of and for the six months ended
October 31, 2002 and 2001, are as follows:
6
<Table>
<Caption>
Three months ended Six months ended
October 31 October 31
2002 2001 2002 2001
----------- ----------- ----------- -----------
Contract Manufacturing:
Revenues $ 395,791 $ 456,076 $ 759,993 $ 836,733
Operating expenses 411,126 462,219 824,153 950,519
----------- ----------- ----------- -----------
Operating loss (15,335) (6,143) (64,160) (113,786)
Depreciation 26,325 29,325 55,110 58,650
Segment assets $ 1,761,876 $ 2,220,143 $ 1,761,876 $ 2,220,143
=========== =========== =========== ===========
Consumer Division:
Revenues $ 2,624 $ -- $ 2,624 $ --
Operating expenses 40,991 -- 70,433 --
----------- ----------- ----------- -----------
Operating loss (38,367) -- (67,809) --
Depreciation -- -- -- --
Segment assets $ 40,907 $ -- $ 40,907 $ --
=========== =========== =========== ===========
</Table>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
Financial Condition and Liquidity
Summa has no long-term debt outstanding and had approximately $337,000 cash in
the bank or in interest bearing accounts at October 31, 2002.
The contract manufacturing of dietary supplements is an industry of ever
changing products and is very price competitive. Summa's market share has
declined and sales for the past fiscal year have been below breakeven levels.
Summa's sales for the first two quarters of fiscal 2003 have been below a
break-even point. After launching Personal Nutrition's website during the second
quarter of fiscal 2003 sales have been slower than anticipated. Management feels
through increased marketing a larger number of potential customers can be
reached to increase sales during the third quarter of fiscal 2003. Management
believes Summa has sufficient funds on hand to operate through fiscal year 2003,
despite the uncertainty of the market/industry.
Summa does not anticipate any additional capital expenditures for fiscal year
end 2003.
Results of Operations
Sales for the first six months of fiscal year 2003 were approximately $762,000
compared to $837,000 in sales for the first six months of fiscal year 2002. The
reduction in sales is attributed to the loss of two key customers during the
first quarter of fiscal year 2002. Customers have not yet been found to replace
the sales to these lost customers. Cost of sales as a percentage of sales for
the first six months of fiscal year 2003 decreased (80% vs. 86%) compared to the
first six months of fiscal year 2002 through the downsizing of its workforce,
which reduced manufacturing expenses.
Sales general and administrative expenses for the first six months of fiscal
year 2003 was approximately $286,000 compared to approximately $230,000 for the
first six months of fiscal year 2002. This increase was due primarily to
expenses relating to the expansion into the direct to consumer market through
Personal Nutrition, Inc.
Interest income decreased approximately $7,600 due to the Summa's decrease in
cash.
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Item 3 - Controls and Procedures
Based on their most recent evaluation, which was completed within 90 days of the
filing of this Form 10-QSB, the President and Chief Accounting Officer have
concluded that the Company's disclosure controls and procedures are effective to
ensure that information required to be disclosed in reports that the Company
files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms.
There were no significant changes in the Company's internal controls or, to its
knowledge, in other factors that could significantly affect its disclosure and
procedures subsequent to the Evaluation Date.
PART II -- OTHER INFORMATION
Item 1 - Legal Proceedings
Not applicable
Item 2 - Changes in Securities
Not applicable
Item 3 - Defaults Upon Senior Securities
Not applicable
Item 4 - Submission of Matters to a Vote of Security Holders
Not applicable
Item 5 - Other information
Not applicable
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by
Jerry A. Nelson.
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by
Pauline G. Lee
(b) Reports on Form 8-K
None
8
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Summa Rx Laboratories, Inc.
December 19, 2002 /s/ Jerry A. Nelson
---------------------------------
Jerry A. Nelson
President
December 19, 2002 /s/ Pauline G. Lee
---------------------------------
Pauline G. Lee
Chief Accounting Officer
9
CERTIFICATIONS
CERTIFICATION OF PRESIDENT, SUMMA RX LABORATORIES, INC.
I, Jerry A. Nelson, President SUMMA RX LABORATORIES, INC., certify that:
1. I have reviewed this quarterly report on Form 10-QSB of SUMMA RX
LABORATORIES, INC.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
December 19, 2002 /s/ Jerry A. Nelson
--------------------------
Jerry A. Nelson
President
10
CERTIFICATION OF CHIEF ACCOUNTING OFFICER, SUMMA RX LABORATORIES, INC.
I, Pauline G. Lee, Chief Accounting Officer, SUMMA RX LABORATORIES, INC.,
certify that:
1. I have reviewed this quarterly report on Form 10-QSB of SUMMA RX
LABORATORIES, INC.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
December 19, 2002 /s/ Pauline G. Lee
---------------------------
Pauline G. Lee
Chief Accounting Officer
11
EXHIBIT INDEX
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 by Jerry A. Nelson
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 by Pauline G. Lee
</Table>
12